If you build them, will they be bought?
That’s the question the auto industry is asking about electric cars. Plunging crude oil prices have lowered fuel prices, and with them consumer aspirations for any vehicle small, fuel-efficient and lower in greenhouse gas emissions.
Instead, they are buying pickup trucks, sport utility vehicles and autos more akin to Hummers.
But increasingly strict Environmental Protection Agency regulations for cars and trucks under President Obama are forcing the industry to make as much as 33 percent of the cars they sell into the next decade battery-powered. The industry says that presents a challenge, given the changing market and cheap fossil fuel prices.
The number of battery-powered cars sold last year was about 1 percent of the 17.5 million in total car and light-duty truck sales, according to the Alliance of Automobile Manufacturers, which represents most of the industry. Since 2010, only about 400,000 have been sold, far short of the 1 million that President Obama promised would be on the road by the end of 2015.
Sales of those cars, as well as all smaller, more fuel-efficient models, were weaker than expected because of low pump prices. Sales of pure electric cars dropped by almost 5,000 last year, according to industry data. The drop in sales of all types of battery-powered cars, including hybrids that also rely on gasoline, was nearly 73,000.
Meanwhile, sales of less fuel-efficient trucks and SUVs saw a significant increase last year, according to the Commerce Department. That trend could present hurdles for the Obama administration’s fuel economy standards, the Energy Information Administration said in September.
EPA deputy spokeswoman Laura Allen says the agency won’t have data on how well the industry complied in 2015 until later this year. “The industry has over-complied with the first three years of the [fuel economy] standards, meaning consumers have been buying vehicles that more than meet the standards,” Allen said.
In recent weeks, the price of oil fell more than 5 percent in so short a period that it hurt the stock market. Many see the trend extending into next year, making gasoline-powered cars more attractive and cutting sales on fuel-efficient hybrids such as the Prius and more pure electric cars such as the Nissan Leaf.
“Obviously, cheaper gasoline and diesel fuel make the alternatives even less competitive than they were already when gasoline was over $3,” said Ben Zycher, senior energy fellow with the conservative American Enterprise Institute. “Without the subsidies and regulatory requirements, they would collapse immediately.”
The head of luxury electric-car maker Tesla, billionaire Elon Musk, agreed they are less competitive.
“[The] industry as a whole, I think, will definitely suffer from lower oil prices,” Musk told CNN Money last week. “It just makes economic sense.”
He says low gasoline prices are pinching Tesla sales. But Musk said his company would likely weather the oil-glut because his vehicles fit a luxury niche. However, smaller electric cars, where the main selling point is being powered by electrons rather than gasoline, will be hurt the most.
“It probably affects us a little less because we have quite significant product differentiation,” Musk said, adding that the lower priced electric vehicles will “take a pretty big hit.” That would include the Chevy Volt, Nissan Leaf, Chevy Spark and others that are priced below the $60,000-$70,000 price tag of the Tesla Model S.
Senate Energy and Natural Resources Chairwoman Lisa Murkowski, R-Alaska, said the nation shouldn’t be placing all its bets on electric vehicles.
“I have consistently advocated technology-neutral policies for the automotive sector,” she said during a hearing last month. “Instead of picking one favored technology, and plowing most or all of our limited federal research dollars into it, I am convinced the better path is to support research into a wider range of possible ‘winners,’ and to let markets and consumers determine which is best.”
Bipartisan energy legislation being considered in the Senate updates the Energy Department’s vehicle research and development programs, with efforts to advance manufacturing techniques, while keeping an eye on the vital metals needed to electrify more of the U.S. fleet of vehicles.
At the hearing, Alliance of Automobile Manufacturers CEO Mitch Bainwol told Murkowski the industry didn’t come close to meeting the president’s 1 million electric vehicle goal.
Despite the numerous benefits of those vehicles to reduce greenhouse gas emissions, “automakers still face several roadblocks to their wide-scale deployment,” he said.
EPA fuel-economy requirements, calling for a fleet average of 54.5 miles per gallon by 2025, “are a mandate not on production but on customer purchases,” he said. A similar standard in California requires that electric cars, including hydrogen fuel cell vehicles, comprise 15.4 percent of all vehicle sales in the Golden State by 2025. A number of other states have opted to meet the California standards, instead of the EPA’s, and also will have to meet that goal, he said. “It doesn’t matter what automakers produce, just what consumers buy,” he said.
Ross Eisenberg, policy vice president at the National Association of Manufacturers, said the vehicle standards are bound to heat up the closer they get to 2017, when the EPA sits down with the industry in a midterm review of the rules.
“It’s going to be an issue” to get to the 54.5 mpg goal, Eisenberg said. “That’s a very aggressive goal” that will require 33 percent of the nation’s cars to be electric. The vehicles “do carry a premium,” and cost will be an issue.
“The big issue is supply versus demand: Are people buying the cars [the automakers] are manufacturing,” he asked.
Bainwol said it’s a struggle. “We are sometimes caught in the middle between the goals of public policy and the preferences of consumers.”
